A great deal has been written about what makes for a suitable self-storage site location. The key variables are visibility and convenience of location within a market. In determining the feasibility of any site are three foundational questions nearly every self-storage feasibility needs to address:
- Is there sufficient demand to support development?
- Does the site have the appropriate characteristics to support a successful location in the market?
- Does the proposed development make sense from an economic standpoint?
The answers to these questions go beyond location and market economics and rests squarely on design and unit mix.
To be of the utmost value, a thorough feasibility study takes what has been learned about the site, market and competition, then develops it for specific market and operational strategies, proposed unit mix and amenities. What features will attract tenants in the proposed market? How can you best position the property to take advantage of its strengths and minimize weaknesses?
The opportunity to use the insights gained during the feasibility study as an effective planning tool for the development and operation of your facility is immeasurable. Such planning will pay off in great dividends during the many years your facility is in business.
Learning From Your Competitors
In the competition-analysis portion of the feasibility study, review the competitors’ unit mix and occupancies by unit type. Pay attention to rental rates of units. Units in short supply are likely the ones in demand; likewise, discounted units are probably those that are harder to rent to potential tenants.
What amenities and facility features are missing in the market? Can extended hours of operation set you apart? Do all the facilities in the market have lighting inside units? Are there multi-story facilities with poor loading and accessibility? Do they offer the use of a truck? Once you evaluate the competition, develop an action plan to make your site succeed.
While not always included in every feasibility study, make sure you have an opportunity to consider developing your facility in phases. It’s always difficult to create the perfect unit mix for a new facility. Phasing enables operators to make adjustments to meet current and future market demand.
A phasing plan also works for developers that want to build all at once. For example, they can build a “shell” and leave a portion of the rental spaces’ doors and partitions undeveloped for future configuration.
Make sure the initial phase of the development has a varied unit mix. If all or most of your 5-by-5 or 10-by-30 units are in the second phase, you will be turning away customers for those sizes until you move to your next phase. The phasing plan should also consider how you can complete the subsequent phases without disruption to facility operations with future construction activities.
A Financial Pro Forma
Completing a financial pro forma that shows a great investment yield is a great experience; however, yields on paper do not pay the bills. If a large percentage of your space never gets rented it may have been better to build a smaller facility more tailored to the market. Planning your facility in a way that perhaps does not look as good on paper but has a real opportunity to produce solid results is where you need to be.
Some developers look at site design from the standpoint of how they can get the most rentable square footage as well as the most dollars per square foot in rent without paying enough attention to the customer experience. Often this approach results in poor unit mixes and facilities lacking amenities that draw customers.
Some operators fail to see how vacancies are a direct consequence of inappropriate unit mixes and poor accessibility to units. In other words, vacancy problems can be explained by having too few or too many of a particular rental space size.
Multi-story facilities may also have to compromise on unit mix since it can be difficult to rent hard-to-reach units not on the ground floor or with drive-up access. If you do proceed with a multi-story project carefully consider how your building and space plan allows for customer loading zones and elevator accessibility.
Consider creating two financial pro formas: one with a development scenario for single-story construction; the other for multi-story construction. Some developers have found multi-story facilities are actually less financially advantageous in certain instances because they have higher construction costs per square foot and may require discounted rents to attract tenants to rent units above ground level. Building wider single-story buildings as an alternative and getting a high concentration of building footprint on the ground level provides the developer with an opportunity to create interior spaces with climate control.
With all that’s at stake, it pays to engage the services of an experienced self-storage consultant to look at your project from many different points of view and provide an objective assessment to enable you to succeed in the real world. The feasibility study is your foundation. Make it a strong one.
Jeffrey Supnick is president of Supnick Real Estate Co. and is a 25-year veteran of the self-storage industry. During his career, Supnick has been responsible for the development of more than 30 self-storage sites. Supnick Real Estate Co. is a full-service firm devoted exclusively to self-storage brokerage, feasibility studies, consulting and property management services. For more information, call 856.722.1414; e-mail [email protected]; visit www.supnick.com.
Some Thoughts on Feasibilities [Discussion Thread]